Question

Perez Co. previously acquired 10,000 shares of its own stock ($1 par) in the open market for $10 per share. This year the firm reissued all of these shares at $12 per share. Which of the following will occur as a result of the treasury shares being reissued:_________

a. Additional Paid in Capital will increase by $20,000.
b. A gain of $20,000 will be included on the income statement.
c. Treasury stock will decrease by $120,000
d. Common Stock will increase by $10,000

Answer 1

a. Additional Paid in Capital will increase by $20,000.

Step-by-step explanation:

Treasury stock is the share of the company issued earlier and bought-back. It can be reissued and cancelled by the company.

Journal Entry for Re-acquirement of shares

Dr. Treasury Stock (10,000 x $10 ) $100,000

Cr. Cash $100,000

Re -issuance of Share

Dr. Cash (10,000 x $12 ) $120,000

Cr. Additional Paid-in Capital $20,000

Cr. Treasury Stock (10,000 x $10 ) $100,000